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Building Society

What is a building society?

A building society is a financial institution originally set up to help people in a particular area to buy their own homes. A building society makes money by paying savers less interest than is charged to mortgage borrowers. Some building societies are ‘mutuals’ – which means that they are owned by their customers. Others have demutualised following the Building Societies Act of 1986 which allowed mutual building societies to convert into limited companies if more than 75% of their members voted to do so.

For many years building societies have been merging with one another, or have been bought by banks. Building Societies are now very similar to banks in many respects, although banks generally provide a much wider range of financial services and are considerably bigger.

Q: What is the difference between a building society and a bank?

A: Account holders in a mutual building society becomes a member of a mutual institution, which gives them voting rights on key issues that affect the governance of the business whereas banks operate to generate revenue for their shareholders.

Because building societies do need to pay dividends to shareholders, they usually offer better savings rates than banks.

Jargon Buster

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